Ansell Limited

ANN Details 

FY20 Key Financial Highlights: Ansell Limited (ASX: ANN) provides safety protection and superior health solutions. It researches, develops, and invests in producing and distributing products that improve human well-being. During FY20, the company’s revenue stood at US$1,613.7 million, increasing 7.7% year over year. Organic revenue for the period increased ~7.6% year over year. Growth amplified on the of HGBU momentum (up 13.4%) and improved IGBU performance (up 1.3%). EBIT stood at US$219.7 million, up 8.3% year over year. In FY20, profit stood at US$158.7 million, up 5.2% year over year and 19% increase in constant currency basis. Earnings per share for the period came in at US 121.8 cents per share, up 9.2% year over year.  EPS growth was driven by higher sales and GPADE margins combined with lower tax & share buyback, thereby maintaining a healthy balance sheet for further growth.

Financial Highlights (Source: Company Reports)

Balance Sheet & Cash Flow Detail: At the end of the period, the company’s net debt stood at US$171.4 million, as compared to US$150.6 million at the end of FY19.  The increase in net debt was on the back of a change in new lease accounting standard. Cash at bank and short-term deposit at the end of the period stood at US$406.1 million, as compared to US$394.7 million at the end of FY19. Capital employed at the end of FY20 stood at US$1,574.8 million. Operating cash flow for FY20 stood at US$191.7 million, with robust cash conversion of 117.7%. 

Key Risks: COVID-19 has posed some challenges such as low demand for some industrial products, constraints on export within the EU and outside, and slowdown of economic growth. Due to changing COVID-19 conditions, the business is subject to possible delays and disruptions to transport and local distribution of products.

Guidance: For FY21, the company expects EPS to be in between US 126 cents to US 138 cents. Going forward, the company is expecting to generate organic growth of more than 3% to 5% per annum. Further, the company expects ROCE to improve in the range of 14% to 15% for FY20. The company is expecting, to have minimal effect on its net financial from the Coronavirus outbreak. The company expects to come out stronger FY21 from the uncertainties around global economies and trade.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of ANN delivered a return of 15.87% in the past three months and is trading above the average of its 52-week trading range. The company has an annual dividend yield of 1.77% and a P/E ratio of 27.09x. On the technical analyses front, the stock has an immediate support level of ~$37.825 and resistance level of ~$42.033. We have valued the stock using Price to Earnings multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). For the purpose, we have considered peers such as Ramsay Health Care Ltd (ASX: RHC), Sonic Healthcare Ltd (ASX: SHL), Healius Ltd (ASX: HLS), to name few. Considering the company’s decent FY20 results across all metrics, its FY21 guidance, and strong balance sheet, we give a ‘Hold’ recommendation on the stock at the current market price of $39.52, down by 1.935% on 25 August 2020.

ANN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Integral Diagnostics Limited

IDX Details 

Revenue Up ~18.7% in FY20: Integral Diagnostics Limited (ASX: IDX) is involved in the provision of diagnostic imaging services across Australia and New Zealand. During FY20, the company’s revenue stood at $274.1 million, rising 18.7% year over year, whereas operating EBITDA increased ~20.9% year over year. Operating EBITDA margin for the period stood at 23.3%, up from 22.9% reported in the prior corresponding period. Operating NPAT for the period stood at $31.2 million, up 21.9% on previous year. The ramp-up stage of North Melbourne Specialist and Research Centre was another key milestone in FY20. As on 30 June 2020, the company reported cash and cash equivalents of $58 million. The company’s net debt at the end of FY20 stood at $124.4 million. The net debt/LTM EBITDA ratio as at 30 June 2020 stood at 1.8x, lower than 2.2x in FY19. Free cash in FY20 came in at $55.7 million, up from $40.4 million in FY19.

FY20 Key Highlights (Source: Company Reports)

What to Expect: In FY21, the company will remain on track to increase its existing business, margins, sales team as well as Australia & New Zealand team with a full suite of products and strategic acquisitions. Additionally, IDX is driving its organic growth, business integration and targeting to achieve future productivity gains by leveraging hub & spoke model. Artificial intelligence has also been a thriving achievement in healthcare. IDX’s plan to grow its product portfolio and enhance its AI execution through the latest technology advancement will improve and enhance patient outcomes on a global basis. Further, the company also aims to complete and integrate Ascot Radiology into IDX.

Risks: The global economy is seeing a bloodbath amid the COVID-19-conducted worldwide sales disorder. This uncertainty around the worldwide along with other material business risk and interest rate risk remains potential headwinds for the company.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Based Relative Valuation Approach (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company is currently trading close to its 52-week high level of $4.390. The company has a market capitalisation of ~$763.16 million. The company remains on track through its increased investment in new technology as well as growth in its business segments along with synergies from acquisitions. On the technical analyses front, the stock has a support level of ~3.928 and resistance level of ~4.363. The stock has gone up ~12% in the last three months. Considering the above factors, we have valued the stock using a price to earnings multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Capitol Health Ltd (ASX: CAJ), Ramsay Health Care Ltd (ASX: RHC), and Sigma Healthcare Ltd (ASX: SIG). Hence, we recommend a “Hold” rating on the stock at the current market price of $4.08, up 4.082% on 25 August 2020.

IDX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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